Capital Gains implications of keeping a co-ownership of property after separation.

[sarebear1992]

Let me submit this case to you: a common law couple splits up. They own jointly 2 properties so they decide to live each in one. Mortgages stay the same as when they were together and they both keep paying for both mortgages.

Fast forward a few years later : they decide to sell one property that was the principal residence of one of them. Are capital gain tax applicable for the years after the couple separated given it is co-owned?

What do you all think?

 

[pyrhonn]

@sarebear1992 Assuming before they split they lived in one of the two and the other was a rental, then upon moving into to the second when they split, it was a change in use. At that point, they both would have to pay on the capital gain on that change in use property. Gain split 50/50. The value used for determining that cap gain is the houses new adjusted cost base. From then on, if living in it, then there will be no cap gains upon selling as used principal residence deduction. If they never reported gain at time of change in use, they should file a voluntary disclosure along with recalculated tax return and any payment due for taxes. Assuming the property went up in value between the dates of change of use and actual sale, this would also then be leaser tax than if you do cap gain on sale date with not principal residence claim and would be the same if you did it upon sale and claimed principal residence for years lived in (or approximately the same - depends if the property value increased the same rate from purchase to change in use to sale). If it sky rocketed after change in use and before but before sale, you are still better off then filing VD and redoing prior return